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 Defendants.


COMPANY, Plaintiff, v.


Defendant-Appellant,  and No. 02-2361



Defendant-Appellee, and


CALIFORNIA,  Defendant.

2 ST. PAUL FIRE v. AMERICAN INT’L SPECIALTY Appeals from the United States District Court for the Eastern District of Virginia, at Alexandria.

Claude M. Hilton, Chief District Judge.

(CA-02-29-A) Argued: January 22, 2004 Decided: April 9, 2004 Before WILKINSON, LUTTIG, and TRAXLER, Circuit Judges.

Reversed and remanded by published opinion. Judge Luttig wrote the opinion, in which Judge Wilkinson and Judge Traxler joined.


ARGUED: Thomas Sykes Schaufelberger, WRIGHT, ROBINSON, OSTHIMER & TATUM, Washington, D.C., for TIG Insurance Company. Elizabeth Stanulis Skilling, HARMAN, CLAYTOR, CORRIGAN & WELLMAN, Richmond, Virginia, for St. Paul Fire & Marine Insurance Company. Robert N. Kelly, JACKSON & CAMPBELL, P.C., Washington, D.C., for Appellee. ON BRIEF: Paul A. Fitzsimmons, WRIGHT, ROBINSON, OSTHIMER & TATUM, Washington, D.C., for TIG Insurance Company. John M. Claytor, HARMAN, CLAYTOR, CORRIGAN & WELLMAN, Richmond, Virginia, for St. Paul Fire & Marine Insurance Company. John R. Casciano, JACKSON & CAMPBELL, P.C., Washington, D.C., for Appellee.


LUTTIG, Circuit Judge:

The instant appeal arises from the settlement of a tort action brought by Terrence Merritt against, inter alia, the owner and the operator of a Virginia resort. Merritt’s lawsuit sought damages for an ST. PAUL FIRE v. AMERICAN INT’L SPECIALTY 3 alleged food poisoning he suffered while at the resort. The defendants agreed to settle the action for $4 million, $3 million of which was funded through an interim agreement between three insurance companies: St. Paul Fire and Marine Insurance Company ("St. Paul"), CNA Casualty Company of California, Inc. ("CNA") and American International Specialty Lines Insurance Company, ("AISLIC"). The companies agreed to resolve their coverage and allocation issues after the lawsuit settled.

Subsequently, St. Paul filed suit against CNA, AISLIC, and a fourth insurer, TIG Insurance Company ("TIG") (who did not contribute to the settlement), requesting a declaration of the four insurers’ respective liability respecting the settlement. St. Paul sought to recover the $1 million it had already contributed, arguing that it had no obligation to cover any portion of the settlement. Exercising diversity jurisdiction, the district court granted AISLIC’s motion for summary judgment and denied St. Paul’s motion for summary judgment.

The court also ordered TIG to pay $1 million plus interest toward the underlying settlement. For the reasons that follow, we reverse and remand.

–  –  –

In 1989, VMS Lansdowne Limited Partnership ("VMS Lansdowne") and BMC-The Benchmark Management Company ("Benchmark Management") entered into a Master Management Agreement ("MMA") relative to the management and operation of Lansdowne Resort (referred to in the MMA as "the Project"), a resort and conference center in Leesburg, Virginia. According to the MMA, Benchmark Management is the "Operator" of the resort — the "sole and exclusive management company" under the MMA — and VMS Lansdowne is the "Owner." The MMA specifies that all top-level management have to be employees of the Operator, and that "all other employees working in or about the Project shall be employees of a subsidiary of Operator." Benchmark Conference Resorts of Virginia ("Benchmark Conference"), a subsidiary of Benchmark Management, was incorporated for that very purpose.

4 ST. PAUL FIRE v. AMERICAN INT’L SPECIALTY Among its numerous sections, the MMA includes indemnification provisions that require, generally speaking, that VMS Lansdowne indemnify Benchmark Management and its agents from liability arising from ordinary negligence or the like at the Resort, but that the opposite occur as to liability arising from gross negligence, fraud, or willful conduct.

The MMA also requires that comprehensive general liability insurance in the amount of $1 million, and excess umbrella liability insurance in the amount of $50 million, be maintained for the project in the name of the Owner and the Operator. Accordingly, VMS Lansdowne purchased insurance policies effective December 1998 from CNA and AISLIC. The CNA general liability policy provides $1 million in primary coverage, and the AISLIC umbrella liability policy provides $50 million of coverage in excess of the CNA policy (collectively, "the CNA/AISLIC line"). Both policies list VMS Lansdowne as a named insured and extend coverage to VMS Lansdowne’s "real estate manager." A "named insured endorsement" for the CNA policy listed VMS Lansdowne Development Corp. ("VMS Development"), VMS Lansdowne’s subsidiary, and "Lansdowne Resort."

Benchmark Management and Benchmark Conference also procured coverage for themselves from St. Paul and TIG. The St. Paul policy provides $1 million in primary coverage, and the TIG policy provides $10 million of umbrella coverage in excess of the St. Paul policy (collectively, "the St. Paul/TIG line"). Notably, each of the four policies includes some form of "other insurance" provision specifying that the policy will serve as excess insurance over (i.e., will not respond until the exhaustion of) any other valid and collectible insurance for damage covered by that policy.

Pursuant to the above-mentioned settlement agreement, CNA, AISLIC, and St. Paul agreed to resolve all claims against the remaining named defendants: VMS Lansdowne, VMS Development, Benchmark Management, and Benchmark Conference, all of which were alleged to be "jointly and severally liable" by the Merritt complaint.

The settlement agreement establishes the named defendants’ "collective liability" for the $4 million settlement amount, J.A. 352-53, but explicitly does not resolve the controversy among the insurers as to their ultimate liabilities.


In proceedings before the district court, St. Paul, TIG, and AISLIC filed cross-motions for summary judgment;1 AISLIC’s motion was granted, and St. Paul’s and TIG’s motions were denied. In its analysis, the district court accepted appellants’ argument that the St.

Paul/TIG line was procured to provide (and should be accordingly interpreted to provide) coverage only if the CNA/AISLIC coverage lapsed or was exhausted. Because it was undisputed that Benchmark Management was covered under the CNA/AISLIC line by virtue of being VMS Lansdowne’s real estate manager, the court concluded that St. Paul and TIG were shielded from any obligation to cover Benchmark Management’s liability from the settlement.

The court concluded, however, that the same result did not follow for Benchmark Conference. Benchmark Conference was not listed by name in the CNA and AISLIC policies, was not covered simply by virtue of being Benchmark Management’s subsidiary, and did not qualify, in the court’s view, under any provision in the CNA and AISLIC policies. Thus, the court concluded that St. Paul and TIG were Benchmark Conference’s primary and excess insurers, and thus were obligated to pay into the settlement.

The district court proceeded to allocate the payment of the settlement between the settling parties’ insurers. The district court first decided that it was unnecessary to allocate payment between CNA and St. Paul because, as primary insurers of the settling parties, their policy limits ($1 million apiece) would necessarily be exhausted.

Then, construing TIG and AISLIC as "concurrent excess insurers," the district court equally divided the remaining $2 million there between. Since TIG had not yet contributed to the settlement, the court ordered TIG to fulfill its assessed obligation, with interest to account for its delay.

CNA did not file a motion for summary judgment below and does not participate in this appeal, apparently conceding that its policy obligations will be exhausted in any event.


St. Paul appeals the district court’s order denying its motion for summary judgment and granting AISLIC’s cross-motion for summary judgment; TIG appeals the district court’s consequent order requiring that it pay $1 million plus interest towards the underlying settlement.

We review the grant of summary judgment de novo, affirming "only if there are no material facts in dispute and the moving party is entitled to judgment as a matter of law." Hitachi Credit Am. Corp. v. Signet Bank, 166 F.3d 614, 623 (4th Cir. 1999). Because we reverse the district court’s grant of AISLIC’s motion for summary judgment (and accompanying order of payment directed to TIG), as well as its denial of St. Paul’s diametrically opposed motion for summary judgment, in assessing the record evidence — which is undisputed in all material respects — we grant AISLIC the benefit of all reasonable inferences.

See Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir.), cert. denied, 124 S. Ct. 135 (2003) (detailing method for treating cross-motions for summary judgment).

Each side makes several arguments on appeal. In brief, St. Paul and TIG ("appellants") argue that the district court erred in implicitly rejecting their arguments that Benchmark Conference is insured under the CNA/AISLIC lines as, e.g., VMS Lansdowne’s "real estate manager" or because Benchmark Conference did business as "Lansdowne Resort," which is listed as an insured under the CNA policy. For its part, AISLIC defends the district court’s division of liability among the four insurers, but on different grounds than that court expressed.

But appellants also contend, and we agree, that even if the district court did not err in this regard, VMS Lansdowne is obligated under the MMA to indemnify Benchmark Management and Benchmark Conference for their share of the settlement, an obligation that should be assessed before any conflicts between the policies are resolved. So in the end, we largely disregard the parties’ free-standing arguments about the various policies, for this case’s resolution is controlled by the MMA’s indemnification provisions.

–  –  –

As might be expected from the above-described facts, the ultimate determination for this court — i.e., the respective liability of each ST. PAUL FIRE v. AMERICAN INT’L SPECIALTY 7 insurer on cross-motions for summary judgment — is not simple.

However, because the liability of an insurer is a question of contract stemming from its contractual obligation to cover its insured’s liabilities, see, e.g., Hudgins v. Jones, 138 S.E.2d 16, 21 (Va. 1964), the logical first step is to determine the respective obligations of the insureds in this case under the settlement. Once that is determined, we must decide how much of the settlement amount to allocate to each party; that is a question of contribution between joint tortfeasors governed by the law of Virginia, where the alleged tort occurred. See Buchanan v. Doe, 431 S.E.2d 289, 291 (Va. 1993). Only after completing these initial steps do we determine the insurers’ respective obligations to cover the settlement liability.


As originally filed, the underlying action named five defendants:

VMS Lansdowne, VMS Development, Benchmark Management, Benchmark Conference, and Benchmark Hospitality, Inc. But by settlement time Benchmark Hospitality had dropped out, leaving the other four as the named defendants to the suit. Appellants contend that the natural division of the settlement liability is equally between the four settling parties.

AISLIC, however, asserts that the settlement should be divided three ways: between the VMS entities (i.e., VMS Lansdowne and VMS Development), Benchmark Management, and Benchmark Conference only. As support, AISLIC notes that the sole basis for the liability asserted in the complaint for each VMS entity is identical — ownership of the resort. In contrast, the complaint named Benchmark Conference and Benchmark Management for separate reasons (the former employed the "culinary persons" and the latter "sold the food"). From this distinction AISLIC reasons that the VMS entities, the collective "owner," should only be assigned one share of the settlement liability, with one going to Benchmark Conference, the "employer," and one going to Benchmark Management, the "operator."

Br. of Appellee at 33.

But AISLIC’s proposed division is contrary to the general rule in Virginia, and without any identified basis in law. As joint tortfeasors, the named defendants are each liable for the entire settlement amount, 8 ST. PAUL FIRE v. AMERICAN INT’L SPECIALTY the allocation of which is a question of contribution. See Ohio Cas.

Ins. Co. v. State Farm Fire and Cas. Co., 546 S.E.2d 421, 423 (Va.

2001). Generally, such joint liability is allocated by equal division between the liable parties. See Wiley N. Jackson Co. v. City of Norfolk, 87 S.E.2d 781, 784 (Va. 1955) ("The right to contribution...

is based on the broad principles of equity that where two or more persons are subject to a common burden it shall be borne equally....").

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